Lender Constraints(or why you can’t always have the car you want)

In the previous post we talked about things you can do to improve you chances of getting financed, this time we will talk about what the dealer can do to improve your odds.  Here is how this scenario lays out, you found a vehicle you like, the dealer submits the paperwork to the lender for an approval and the lender calls back and says we are not interested in approving this customer on this car, but if you find a vehicle that fits these guidelines(which we will discuss a little later), we would consider extending them a loan.  Now the last thing a dealer wants to do is switch cars around on you, especially after you have found one you like, but given the two options, the first one is telling you we cannot finance you and you leave without a vehicle or the other option, we can probably secure financing for you if we change vehicles, the dealer is going to make every effort to find a vehicle that fits the lenders qualifications, since the bank has hinted there is a chance for an approval.

There are several reasons the banks make these demands, but most of these demands are made with one thing in mind, they don’t want you in a car that may break down and you have to make a choice between making you car payment or a repair.  Most of the time this conditional approval is pretty standard, they would like to see you in a vehicle that is a 2002 or newer, generally no more than 75,000 miles, and something with an $8,000 max price.  Keep in mind this is a positive, if we find a vehicle within these parameters, most likely you will be approved for a loan.

Now here is the part that most people have difficulty understanding, the cars that fit these parameters are  not usually trucks, vans, or SUV’s, they are generally small to midsize sedans.  When looking at these cars, understand it is not your dream vehicle, but if you make your first 12 payments on time, chances are you will be able to trade that car for the vehicle you want next year, it all comes back to re-establishing your damaged credit.

This just a way to get to the vehicle you want, this may not be your ideal vehicle, but in my experience these vehicles are always much newer and nicer than the current one you are driving and have thousands less miles.  So the downside is you get to drive a better vehicle for a year while you rebuild your credit to get the one you really want.  As your credit improves your loan options will open up and you won’t have to deal with banks that tell you what you can and cannot buy.

South Pacific Auto has a very successful stair-step program in place, we have seen many customers go from our in-house financing program to getting financed with preferred lenders with low interest rates.  If you are ready to turn your credit history around and start rebuilding your credit, give me a call at (541) 974-0780, email me at jon@southpacificautosales.com, or fill out our online application by clicking here.

How to improve your odds of securing a loan

When dealing with damaged credit there are a lot more hoops for the dealer and customer to jump through to secure financing with a bank, but at the end of the day there are a things that can be done to increase your odds of securing a loan.  As mentioned before it’s not just the customer the banks make demands on, it is also the dealer, so we will start on the consumer end then move on to the dealer in my next post.

 As a consumer with damaged credit, the banks require a lot more verification, to put it bluntly, they don’t trust you and want you to back up everything that you have put down on your application.  This is also why most dealers require this information upfront before they even submit an application, I don’t know how many times I have seen a loan get approved only to have it put into decline status because income or job time didn’t match up with the application.   As mentioned before, your goal is to build trust with the lender, so don’t overstate your income, the bank is going to require your most recent pays-tub at a minimum, so they will know the facts soon enough.

Banks that deal with special finance customer generally have a list of requirements that need met before finalizing a loan: your most recent pay-stub, a bill showing proof of residence: a phone bill, a power bill, or something showing your name with you address(this again comes back to proving what you listed on your application), landlord name and number, and six complete references with name, address, and phone numbers.  By bringing these items in with you on your first visit to the dealer you have greatly increased your odds of getting an approval. 

Special finance is all about building trust with the lender, submitting the initial application with all the required information makes a very good impression with the lender, it shows them that you are serious about getting a loan, organized, and that you are taking the needed steps to secure a loan.  You’re much better off giving the lender the required information up front, they are going to require it anyways, so why make them ask for it.

Another way to improve your odds is to be realistic on the loan amount, if you have damaged credit, your chances of getting an approval on a $20,000 to $30,000 loan are very slim and most likely unattainable.  If you are more realistic and look for something with around an $8,000 max price, your odds have increased again.  It’s all about risk management with the lenders, they are willing to take a chance on you, but they are only willing to go so far, if they have to reposes a car their loss is likely to be much less on an inexpensive car.

Now here is the one of the biggest things that increase your odds of securing a loan, and that is down-payment.  As I have mentioned before it is all about trust and risk management with the lenders and money down helps with that criteria.  The first thing the bank sees with cash participation on your part is that you now have your own money invested in this car and more than likely you will not want to lose that money in a repossession.  The other part is the risk factor, let’s say you find a $6,000 vehicle and you just put $1,500 down, so you are only financing $4,500 with them, if they have to reposes it after 8 or 9 payment they have reduced their chance of loss significantly.

Obviously there are other factors that go into getting a loan, but if you do the things I listed in this post, you can overcome a lot of the problems associated with damaged credit and greatly increase your odds of securing a loan.

New Years Resolutions: Fix Your Credit

2008 is here and it’s a new year, this can be the year you turn that bad credit history around once and for all.  It won’t be easy, it will take on lot of discipline on your part, but like any other New Years resolution, if you stick with it you will be successful.

I already know what you’re thinking, it’s too hard, my credit is so bad there is no way I can turn it around.  You have to look at it this way, even though your credit may be trashed, if you don’t start working on it today, you will still have the same bad credit years down the road.  So now is the time to get serious and start repairing your credit.

Let’s start off with something easy and free, like getting your free credit report.  In an earlier post on this blog I included information on how to get a free credit report, the credit reporting agencies are required to provide you with a free one every year.  All you have to do to get this free report is go to annualcreditreport.com this is the best place to start, not only is it free, but will give you a roadmap to work from.

Once you have this credit road map you need to devolop plan like you would with any other map.  Start your trip with area’s you would like to work on first and a good place to start is at the top of the credit report with your outstanding collections.  I’ve seen this time and time again, a list of collections that take up over half of the first page with $10 to $30 balances.  This is where you need be consitent and have a plan, work on paying these collections off over a three of four month period.  Some folks have larger balances in collections, but a majority of the time there are also several smaller ones in there too, make the effort on paying off the small ones and work out a long term plan on the bigger ones.

You have to remember the collection accounts are right at the top of your credit report, when you pay off the collection accounts they will report as paid.  Now this negative has been turned into a positive, when a lender sees “paid” instead of a balance due in that column, it shows you are making an effort to clean up your credit and now you start looking like a better risk for a loan.

The whole purpose of this blog is to help our credit challenged customers understand their situation and give them practical ways to improve their credit, so now it’s time for you to give us some feedback.  Please post your comments letting us know what you like so far and any suggestions for topics you would like covered.

In my next post, I can cover the value of an account that is paid on time and what that can lead to, or I can cover what you can do to improve your odds of getting approved for financing.  Let me know which one you would like next.